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MNCs Snap Up Organic Food Firms in Brazil

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The aroma of Brazil’s growing organic food market is beginning to spread and multinational companies like Nestle and Unilever are trying to catch a whiff. Not surprisingly, domestic brands are fast becoming attractive targets for foreign investors. In October, Unilever bought Brazilian firm Mae Terra and promised to keep the "differentiated vision and culture" of the food sector brand.

In a press statement, the multinational giant pointed to two main reasons for this purchase. One, Brazil is now the sixth biggest health food and drink market in the world. And second, Mae Terra's revenues have been growing at 30% year-on-year. Mae Terra, founded in 1979, manufactures 120 natural and organic products including the likes of cereal bars, cookies, culinary items and employs 300 workers. The company is based in Osasco, a city of the metropolitan region of Sao Paulo.

Healthy food equals healthy business

Revenues from the organic food market in Brazil increased from $767 mn in 2015 to $920 mn last year as per data from Organics Brasil data. The country also exported $145 million worth organic food in 2016. The market is growing fast.

A survey by Market Analysis and Organics Brasil in nine metropolitan areas between March and April 2016 showed that there was much potential demand for organic and natural products. Of the 905 people interviewed, 15% consumed organic food during the previous month with 29% usually consuming the same one or more times a week. However, 84% said that they intended to consume more organic food.

The main barriers to higher consumption of these products were price (62%), difficulty in finding the products (32%) and unfamiliarity with the organic food concept. The majority of the people interviewed (86%) considered organic products to be reliable.

Investors want a bite

Ming Liu, executive-director of Organics Brasil, a public-private foment program for the organic sector said that almost every producer of natural and organic food in the country is now seeing interest from potential buyers and investors since the organic food market was regulated, in 2011. The owners of Korin, an organic chicken and fish producer, and Granja Mantiqueira, an organic eggs producer, publically confirmed that they had received purchase offers recently.

"As the healthy and organic food market grows in Brazil, the companies of this segment stand out and attract the attention of big corporations, private equity firms, financial funds that are aware of the potential of this market", said Ming Liu. "Everyday I receive requests from people interested in investing in this market."

Even as global food giants conclude deals for organic brands, they are sticking to a company's existing products, culture and guiding priniciples to ensure that they retain the original "healthy food" brand foundation. Unilever, for instance, has retained Alexandre Borges as Mae Terra's CEO and said that it will not meddle with the company's culture and vision. Others like French Nutrition et Sante, a subsidiary of Japanese pharmaceutical group Otsuka that bought Jasmine, a Brazilian healthy food producer in 2014, too have largely kept to the company's original brand principles and have retained its board of directors.

Apart from acquisitions, big food companies are also adding organic items to their own list of products. Nestle has said that it will launch a new line of organic dairy products by 2019.

Expected: More growth

The perspective of better economic performance in 2018, after three years of recession, can also be a factor for giving the consumption of organic and natural products in Brazil a fillip, said Ming Liu. Consumers may not mind paying a little extra if they know that their products are safe and natural. High level of pesticides in regular food has people worried and is a leading factor for growing consumers' preference for organic products. Recent research conducted by the Biologic Institute of Sao Paulo for Greenpeace showed that 60% of the food consumed in Sao Paulo and Brasilia everyday has pesticides residues.

As the awareness and preference for organic food products builds up, it would not be surprising to see global food giant invest more in growing their health food business in Brazil. This would also be in keeping with the worldwide consumer trend where companies see more and more people asking about the nutrition value of their food and willing to make a switch, at times even despite higher prices. Brazil’s 208 mn people make for a healthy market for sure. Watch this space for more action.